Bargains get even better

Better quality, greater choices, competitive prices and easier loan facilities — the action in the second-hand car market is good for both buyers and sellers.

Namrata Dadwal        Print Edition: April 17, 2008

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You’ve decided to turn in your old Maruti 800 for a slightly larger and more powerful car. But which one? In the small car segment alone, it appears as though one car is a clone of the next. Similar size, similar or same engine capacity and power, similar mileage, same colours. There’s really little other than aesthetics that set most cars apart. But have you ever thought of the resale value when you buy a car? After all, unlike for your father or grandfather, a car is no longer a permanent possession, is it? Chances are, you’ll be trading this car in for a newer, more powerful model in a couple of years. So knowing how much you’ll get for these wheels will help.

The price of used, or preowned, cars depends largely on the price of new vehicles. This year’s Budget has cut the excise duty on small cars by 4 percentage points, making these cars cheaper. Preowned small cars have seen a corresponding dip in prices. “We usually calculate the price of a two-year-old car to be around 40% of the depreciated value of a new car. So, obviously, if the price of a new car drops, we will see a corresponding drop in the price of a used car,” says Sunil Mittal, vice-president, business development, First Choice Wheels. Adds Ravi Bhatia, general manager of Maruti’s True Value: “For every Rs 100 drop in the price of a new car, the price of a used car drops by Rs 30-50.” This might be the best of times to buy a used car, and possibly the worst time to sell.

However, given that new cars are getting more affordable by the day, and that loans are easily available, and the imminent arrival of Tata’s Rs 1 lakh Nano on the roads, does it actually make sense to buy a pre-owned car? If you’re thinking of a second car or looking for a city runabout that will serve as a car-pool vehicle, a used car makes sense. No matter what, it will be cheaper than a new one. If you do your homework carefully and get a trusted mechanic to inspect the vehicle before you buy, you’re more than likely to end up with a bargain. And you could buy a car that’s almost new. As Mittal says: “Earlier, people used to buy and keep a car for six to seven years, but now the ownership period has reduced to just 42 months.” If you’re lucky, or if you’ve done your research, you could find a gem that’s no longer being manufactured.

For instance, you could buy a really cheap Baleno, which Maruti has phased out but which still remains a good buy if you’re looking for a large car. You get the advantage of Maruti’s huge sales and service network, you have easy access to spares, and you know the car comes from a reputed lineage. Or you might decide to opt for any of the Daewoo cars. The Matiz, for instance, which has been recently re-launched in a new guise, remains a good car, despite the company folding up. Then, there’s the all-important reason: snob value. You can get a three-year-old Toyota Corolla for around Rs 7 lakh instead of shelling out over Rs 12 lakh for a new one (see table Prices: New & Old). The wheels are just as snazzy and if the body and paintwork is good, nobody’s going to know that it’s an old car. A two-year-old Hyundai Sonata can be had for around half the price of a new vehicle.

You’re most likely to get a good deal on a used car that’s three to five years old. That’s when most people trade their vehicles in for newer models. The vehicles are likely to be in reasonably good shape. Also, banks are most likely to give you a loan for cars in this age bracket. Another point worth remembering, particularly if you’re looking at used car prices before spending on a new car, is that the demandsupply gap also drives prices.

“In the case of Maruti 800, supply matches the demand, but in the case of the Wagon R, the demand far outweighs the supply,” says Bhatia. Add to all this the burgeoning number of organised used-car retailers (who offer warranties and after-sales service similar to what new car dealers offer), and you are more than likely to have a smooth ride even if it’s on used wheels.

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